How to Calculate Ending Accounts Receivable Balance
Calculating the ending accounts receivable balance is a crucial task for businesses to manage their cash flow and financial health effectively. Accounts receivable represent the amounts owed to a company by its customers for goods or services provided on credit. Accurate calculation of this balance ensures that the company has a clear understanding of its outstanding receivables and can take appropriate actions to recover the money. In this article, we will discuss the steps to calculate the ending accounts receivable balance.
Step 1: Start with the Opening Accounts Receivable Balance
The first step in calculating the ending accounts receivable balance is to determine the opening balance. This is the amount of accounts receivable at the beginning of the accounting period. You can find this information in the company’s previous financial statements or balance sheet.
Step 2: Add Credit Sales During the Period
Next, you need to add the total credit sales made during the accounting period. Credit sales are the sales made on credit, where the customer is not required to pay immediately. This information can be obtained from the company’s sales records or sales ledger.
Step 3: Subtract Cash Received from Customers
To calculate the ending accounts receivable balance, you must subtract the total cash received from customers during the accounting period. This includes payments made by customers towards their outstanding balances. You can find this information in the company’s cash receipts journal or bank statements.
Step 4: Subtract Sales Returns and Allowances
If the company has made any sales returns or allowances during the accounting period, subtract these amounts from the previous result. Sales returns are when customers return goods, and allowances are discounts or rebates given to customers for various reasons.
Step 5: Subtract Bad Debts Written Off
Lastly, subtract any bad debts written off during the accounting period. Bad debts are amounts that are deemed uncollectible and are removed from the accounts receivable balance. This information can be found in the company’s bad debts expense account.
Step 6: Calculate the Ending Accounts Receivable Balance
After following the above steps, you will have the ending accounts receivable balance. This is the final amount of accounts receivable at the end of the accounting period. It represents the total amount owed to the company by its customers for goods or services provided on credit.
In conclusion, calculating the ending accounts receivable balance involves starting with the opening balance, adding credit sales, subtracting cash received, sales returns, allowances, and bad debts written off. This process ensures that the company has an accurate understanding of its outstanding receivables and can take appropriate actions to manage its cash flow effectively.
